Paul Krugman is one of the leading “names” in economics today. There are reasons for his stature. He’s got a Nobel Prize, he’s an academic at a leading University, he writes for the NY Times, and not a week goes by without him being on some TV show or another. If you asked the average guy on the street to name an economist, there’s a good chance the answer would be - “Krugman”.

PK has been having a slow motion epiphany over the last month. He has posted four articles on a topic since December 8. (Link, Link, Link and Link) He has identified a “phenomenon” that is occurring in the US economy. This new, powerful force that he has stumbled upon, is keeping him awake at night. Clearly, PK is troubled by what he has uncovered. His words:

“It” has really uncomfortable implications. But I think we’d better start paying attention to those implications.​

Are you worried yet?

PK drives home the point that what he has uncovered is not now in mainstream economic thinking. He admits that even he missed the signs that something was amiss in the world of modern economics:

Not enough people (me included!) have looked up to notice that things have changed.​

Okay. What is it that PK has found hidden deep below the economic rocks that is causing him such fits? Grab onto your seats - this is big. PK has observed, for the first time in his economic career, the simple fact that technology has reduced the role of labor in the economy.

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That’s PK’s epiphany? He just came to that conclusion in the last month? I’m thinking, “What planet has this guy been living on the past 10 years?” But then I realized PK has not been living on Mars, he’s been living in Princeton; amongst the Ivy.

Has PK not gone to a new mechanized distribution center like FedEx, UPS and Amazon have? Does he not know that it takes less printers to make the NYTs these days? Has he not been to a modern assembly plant that makes things with robots? How could he have missed the notion that technology was reducing the demand for human labor all these years? The only way that this could have been missed is if PK had his eyes covered and his head in the sand. He had this to say about his big new "find".

Mea culpa: I myself didn’t grasp this until recently. But it’s really crucial.​

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Forget about why PK has not connected these very important dots over many years; focus on why he's crapping in his pants over his new awareness. It’s simple math. Take two examples A) where Labor = 60% of GDP and B) Labor = 50% of GDP. If GDP = $16T, then A = 9.6T and B = 8T.

The problem is that Social Security (SS) taxes Labor at 12%. The difference between A and B ($1.6T * 12.4%) means that SS ends up with $200 Billion less in annual revenue.

PK went off and pondered his “discovery”. He did the A and B math, then he wrote:

If payrolls lag behind overall national income, this will tend to leave those programs underfunded
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Duh….

Then PK went on to really stir the pot by suggesting that the Congressional Budget Office (CBO) was using a rosy long-term estimate for the critical Labor/GDP percentage in its projections. PK says:

CBO could very easily be quite wrong here, and will indeed be very wrong if the rise of smart machines plays out ​

What’s dawning on PK is that his vision of the future does not take into proper consideration the role that technology has today, and will play in the future, on labor employment. What he's looking at is a structural change; one that can’t be altered. He’s coming to the conclusion that Social Security doesn't “work” when there are not enough workers paying into the scheme. This is a remarkable conclusion from the most liberal economist out there.

Move on a few days and PK does some more deep thinking. He now realizes that the current expectations for future revenue for SS are unrealistic. He knows that the lines will cross more quickly than is now anticipated. He understands that this is a here-and-now problem, but he also has grasped that this is also a 75-year problem. So he comes up with a plan; simple yet elegant. He wants to tax the robots.

There would be no problem, at least in economic terms, by adding revenue (to SS) from dedicated taxes on capital income.​

Actually, I don’t think that PK really believes that taxing investments in manufacturing technology is a good idea. The fact is, it’s a terrible idea, and PK knows it. If you want an economy to grow, and be globally competitive, you create incentives (tax breaks) for capital investment; you don’t create disincentives. Period.

I suspect that PK is slowly recognizing that he has put himself in a box. He has come to conclude that SS, as it is currently configured, is not viable. The villain is technology that reduces the long-term demand for labor. His solution, not surprisingly, is more taxes. But there is not a chance in 100 of taxes on capital investments to support SS (nor should there be).
PK is walking a plank, he’s getting close to the edge. When he goes over, he will bring with him a bunch of other liberal economists that believe that the SS “miracle” can be sustained. In his latest missive on this topic PK promises:

It is not just about robots but the growth of capital income as a percentage of all income. This is also due to capital inflows, globalization pushing down the wage, and anything else that helps the capital markets over labor.

The idea that capital markets are so dependent on tax policy is pretty stupid.

You've created a paradox. I was going to say that I'm not confused, but that means that I am confused about what you think I am confused about. Which of course means that I am confused. But since I know what it is I'm confused about, I'm no longer confused.

I love when people use the term "wage slavery". It saves me a lot of time in deciding whether I need to read the rest of what they had to say.

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It is a term that has been used to remind us how employees can use their leverage to take advantage of their employees. It is no surprise that being reminded of this reality of free market capitalism makes you stop reading.

I love when people use the term "wage slavery". It saves me a lot of time in deciding whether I need to read the rest of what they had to say.

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It is a term that has been used to

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convince the sheep that their labor is worth more than it actually is.

If this fable were true then their would not be a need for the minimum wage ...

Again a day's labor from an unskilled worker has always been and is now .. 1/10th an ounce of silver. "Globalization" is basically the correction process fixing the bubble in labor wages in the western nations

Krugman is well known and well respected for his work on trade which has been a huge influence on American policy for both sides of the aisle. Most people know him for his more recent NYT stuff which is in large part about the erosion of the US labor markets as a result of various things like our trade policies.

This is why I don't care about appeal to authority arguments. Your argument either makes sense or it doesn't. It doesn't matter what some authority says.

I've been saying for years that the reason worker bees are suffering is that there are way more of them than we need. Krugman would have disagreed with me, but I was right the whole time.

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I'd be interested to hear what you think should be done in an environment with too many workers and not enough work.

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You mean for the 100th time? Okay.

Stop paying worker bees to breed more worker bees that we don't need. Instead, pay them not to breed. In time, unemployment will go down, wages will go up, and the cost of social programs will plummet.

I'd be interested to hear what you think should be done in an environment with too many workers and not enough work.

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You mean for the 100th time? Okay.

Stop paying worker bees to breed more worker bees that we don't need. Instead, pay them not to breed. In time, unemployment will go down, wages will go up, and the cost of social programs will plummet.

Your welcome.

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You analogy sucks. You can never have too many worker bees, but you an have too many queens and drones.

The argument that has also been laughed at and dismissed 100 times. Keep up the good work paul.

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Okay, what's your solution to the fact that we have wayyyyy too many worker bees?

Higher taxes and magic?

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In terms of demographics we actually don't have enough people being born to support the baby boomers in retirement.

We don't need less people, we need more demand for their production. Increases in productivity are not a new thing in economics but it seems people are still confused that the only thing that will really support full employment and increased productivity is enough demand to support both.

The argument that has also been laughed at and dismissed 100 times. Keep up the good work paul.

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Okay, what's your solution to the fact that we have wayyyyy too many worker bees?

Higher taxes and magic?

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In terms of demographics we actually don't have enough people being born to support the baby boomers in retirement.

We don't need less people, we need more demand for their production. Increases in productivity are not a new thing in economics but it seems people are still confused that the only thing that will really support full employment and increased productivity is enough demand to support both.

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You might as well say we don't have enough giraffes to support the baby boomers in retirement.

We have plenty of giraffes. It doesn't matter how many giraffes you breed, they will never be able to support the baby boomers in retirement because we don't have any use for more. Same goes for worker bees. Tons of them are unemployed and living off of social programs. As long as we have more of them than we need, tons of them will be unemployed and living off of social programs.

Your plan to finance social programs for baby boomers by breeding a whole generation of unproductive people to live off of welfare may have a flaw in it.

You might as well say we don't have enough giraffes to support the baby boomers in retirement.

We have plenty of giraffes. It doesn't matter how many giraffes you breed, they will never be able to support the baby boomers in retirement because we don't have any use for more. Same goes for worker bees. Tons of them are unemployed and living off of social programs. As long as we have more of them than we need, tons of them will be unemployed and living off of social programs.

Your plan to finance social programs for baby boomers by breeding a whole generation of unproductive people to live off of welfare may have a flaw in it.

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You once again use a horrible analogy that is really only good at demonstrating your ignorance.

People are not giraffes.

Last I checked it was not just the poor that were struggling but the middle class and the working class. Your talk of welfare is comically ignorant and stupid.

If you don't know what an analogy is, you should probably stop criticizing them. If two things are the same, they cannot be analogous. For example, I cannot be analogous to myself. I am myself. If people were giraffes, it wouldn't be an analogy.

If you don't know what an analogy is, you should probably stop criticizing them. If two things are the same, they cannot be analogous. For example, I cannot be analogous to myself. I am myself. If people were giraffes, it wouldn't be an analogy.